Lease abstraction projects can be divided into two phases, namely, the pre-abstraction phase and the post-abstraction phase. The pre-abstraction phase is extremely important as it sets the tone for the rest of the project. The success of a lease abstraction project largely depends on the actions taken during the pre-abstraction phase.
Our blog this week discusses a few questions that must be answered during the pre-abstraction phase in order to ensure the lease abstraction project is fruitful.
Question #1: What are the different lease types?
Before starting your lease abstraction project, you need to consider the different lease types that you have. These include equipment leases and real estate leases, which includes property and ground leases. This is an important factor, because the information you capture and the lease abstract format will vary depending on the type of lease.
Question #2: Where are the leases located?
Another factor to consider is the lease location. This question has two parts to it. First is in terms of lease documents storage and location. Questions to answer from this perspective are
Do you have digital copies of the lease documents?
Where are they stored and are they easily accessible?
What is the quality of the documents in terms of readability?
The second part related to the location of the leased premises which may affect the actual language in which the leases are drafted and also the interpretation of clauses due to differences in lease/legal language from region to region. This is important because it impacts how you approach your lease abstraction process. As a best practice, when dealing with multilingual leases, it is generally more economical, efficient and even accurate when the lease abstract is created in English directly rather than abstracting in the local language and then translating the abstract to English.
Question #3: How is the lease portfolio currently managed?
The next item to consider is the current situation of the lease portfolio. How is the lease portfolio currently managed and by whom? Do you have enough resources to stay on top of your lease portfolio and keep it updated, always? Do you have a well-staffed lease administration team or do you rely on a few lease administrators for management of your lease portfolio? In that case do you have a back-up if your lease administrator quit? These are some of the questions to be answered at this stage. Another factor to think about is whether you have a lease management system in place or are you relying on spreadsheets? While spreadsheets have their benefits, a dedicated lease platform can be a more effective tool for lease portfolio management. So, if you are having your leases abstracted, and are using spreadsheets, it might also be a good time to consider migrating to a lease administration platform that can help in lease management throughout the lease lifecycle.